By Douglas Goldstein, CFP®

I was giving my son some money to buy a few groceries and he asked for a bit more “just in case the price changed.” While we are no longer living in the days of hyper-inflation, he was astute beyond his years because he realized that prices are steadily increasing and he didn’t want to come up short at the cash register.

While reports minimizing the impact of inflation are readily found, it is important to remember that numbers can be twisted to reflect any reality. Even if inflation per se is relatively low, little can be said to dispute the fact that bread and other basic products cost more today than they did last year. The loss of purchasing power is especially perilous for retirees and other people living on fixed income. This is because as time passes and their purchasing power diminishes, it becomes more difficult for them to maintain the same standard of living.

While social security and bituach leumi have periodic adjustments for cost of living and inflation, these modifications are typically small and come months after prices have risen and/or inflation has hit. While it may be fair to say a general rule of thumb for working folks is that their expenditures should not surpass their income, for people on fixed income it may be better to keep expenses a bit below income.

Living within your means
People living on fixed income should focus on their own spending. While it may be fun to compare your expenses to the “average person,” remember that the average is reached by mixing the high and low extremes. Instead of focusing on other people, look at your own spending, and make sure that you aren’t spending too much too quickly.

In order to determine whether you can continue with your current spending patterns, develop a financial plan. By projecting your spending and income sources (including salaries, pension and investment revenues), a financial plan can help you know whether you can continue with your current lifestyle or are en route to outliving your resources. For more information, go to the financial planning tab at www.profile-financial.com.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.